PURCHASE AND SALE AGREEMENT
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This Purchase and Sale Agreement ("Agreement") dated as of September 28,
2001, is by and between CHOCTAW II OIL & GAS, LTD., a Texas limited
partnership ("Seller"), and NANCE PETROLEUM CORPORATION ("Buyer"), relative to
the "Interests" (as hereinafter defined).
In consideration of the mutual promises contained herein, the benefits to
be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller
agree as follows:
ARTICLE I
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PURCHASE AND SALE
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1.01 Purchase and Sale. Seller agrees to sell and convey and Buyer agrees
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to purchase and pay for the Interests subject to the terms and conditions of
this Agreement.
1.02 Interests. All of the following (except for the "Excluded Assets"
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defined below) shall be referred to as the "Interests":
(a) All of Seller's interests, in and to the entire estates created by
the leases, licenses, permits and other agreements described in Exhibit "A" (the
"Leases") and the lands described in Exhibit "A" (the "Lands"), and including
all of Seller's interests in and to its oil and gas assets within the states of
Montana, North Dakota, Wyoming, and Colorado whether correctly described herein
unless specifically included within the Excluded Assets, together with (i) all
rights, privileges, benefits and powers conferred upon the holder of the Leases
with respect to the use and occupation of the surface of the Lands that may be
necessary, convenient or incidental to the possession and enjoyment of the
Leases, (ii) all rights in respect of any pooled, communtized, or unitized
acreage located in whole or in part within the Lands by virtue of the Leases,
including rights to production from the pool, communitized area, or unit
allocated to any Lease being a part thereof, regardless of whether such
production is from the Lands, (iii) all rights, options, titles and interests of
Seller granting Seller the right to obtain, or otherwise earn interests within
the Lands no matter how earned, and (iv) all tenements, hereditaments and
appurtenances belonging to any of the foregoing;
(b) The undivided interests in and to all of the oil and gas wells,
saltwater disposal wells and injection wells (the "Wells") as set forth in
Exhibit A together with all hydrocarbons produced from the Wells and Leases and
all of the personal property, fixtures and improvements now or as of the
Effective Time (as defined in Section 1.04 below) on the Lands, appurtenant
thereto or used in connection therewith or with the production, treatment, sale
or disposal of hydrocarbons or water produced therefrom or attributable thereto
and all other appurtenances thereunto belonging including without limitation,
all pipe, fittings and other equipment located in the Sydney, Montana yard and
any other Williston Basin yards;
(c) The contracts and contractual rights, obligations and interests,
including all farmout agreements, farmin agreements, drilling contracts,
operating agreements, sales contracts, saltwater disposal agreements, division
orders and transfer orders and other contracts or agreements covering or
affecting any or all of the Leases and/or Lands (the "Contracts"); and
(d) The easements, licenses, authorizations, permits, rights of way,
servitudes, surface leases, the building lease for the Sydney, Montana field
office and similar rights and interests applicable to the ownership or operation
of the Wells; and
(e) Insofar as such pertain to the Leases, Lands, Wells and the other
equipment, personal property, Contracts and other matters described herein, all
books, records, reports, manuals, files, title documents, including
correspondence, records of production maintenance, revenue, sales, expenses,
warranties, lease files, land files, well files, division order files,
abstracts, title opinions, assignments, reports, and other written material
relating to the Interests and in Seller's possession, including without
limitation, property records, contract files, operations files, copies of tax
and accounting records (but excluding Federal income tax returns and records)
and files, maps, core data, hydrocarbon analyses, well logs, mud logs, field
studies, together with other files, contracts, and other records and data,
including all geologic and geophysical data and seismic of Seller relating to
the Interests (the "Records"); however, Seller shall have no obligation to
furnish Buyer any data or information which Seller cannot provide to Buyer
because of third party restrictions.
1.03 Excluded Assets. As used herein, "Excluded Assets" means (a) all trade
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credits and all accounts, instruments and general intangibles (as such terms are
defined in the Texas Uniform Commercial Code) attributable to the Interests with
respect to any period of time prior to the Effective Time; (b) all claims and
causes of action of Seller (i) arising from acts, omissions or events, or damage
to or destruction of property, occurring prior to the Effective Time, (ii)
arising under or with respect to any contracts that are attributable to periods
of time prior to the Effective Time (including claims for adjustments or
refunds), or (iii) with respect to any of the Excluded Assets; (c) all rights
and interests of Seller (i) under any policy or agreement of insurance or
indemnity, (ii) under any bond, or (iii) to any insurance or condemnation
proceeds or awards arising, in each case, from acts, omissions or events, or
damage to or destruction of property, occurring prior to the Effective Time; (d)
all substances produced and sold from the Lands and Leases with respect to all
periods prior to the Effective Time, together with all proceeds from or of such
substances; (e) claims of Seller for refunds of or loss carry forwards with
respect to (i) production or any other taxes attributable to any period prior to
the Effective Time, (ii) income or franchise taxes, or (iii) any taxes
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attributable to the Excluded Assets; (f) all amounts due or payable to Seller as
adjustments to insurance premiums related to the Interests with respect to any
periods prior to the Effective Time; (g) all proceeds, income or revenues (and
any security or other deposits made) attributable to (i) the Interests for any
period prior to the Effective Time, or (ii) any Excluded Assets; (h) all
personal computers and associated peripherals and all radio and telephone
equipment except that which is located on the Wells; (i) all of Seller's
proprietary computer software, patents, trade secrets, copyrights, names,
trademarks, logos and other intellectual property; (j) Seller's interests in
Blaine, Chocteau and Hill Counties, Montana, which collectively comprise the
Bearpaw Prospect; (k) all documents and instruments of Seller that may be
protected by an attorney-client privilege; (l) data that cannot be disclosed or
assigned to Buyer as a result of confidentiality arrangements under agreements
with persons unaffiliated with Seller; (m) all audit rights arising under any
contracts or otherwise with respect to any period prior to the Effective Time or
to any of the Excluded Assets; and (n) all of Seller's rolling stock, including,
without limitation, nine (9) pickup trucks; and (o) all (i) agreements and
correspondence between Seller and its representatives and any affiliates thereof
relating to the transactions contemplated in this Agreement, (ii) lists of
prospective purchasers for such transactions compiled by Seller or its
representatives, (iii) bids submitted by other prospective purchasers of the
Interests, (iv) analyses by Seller or its representatives of any bids submitted
by any prospective purchaser, (v) correspondence between or among Seller or its
representatives, or either of their respective representatives, and any
prospective purchaser other than Buyer, and (vi) correspondence between Seller
or its representatives, or any of their respective representatives with respect
to any of the bids, the prospective purchasers, the engagement or activities of
its representatives or the transactions contemplated in this Agreement.
1.04 Effective Time. The purchase and sale of the Interests shall be
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effective for all purposes as of September 1, 2001, at 12:01a.m., local time at
the location of the Interests (the "Effective Time").
ARTICLE II
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PURCHASE PRICE
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2.01 Purchase Price. The purchase price for the Interests shall be
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Forty-One Million and No/100 Dollars ($41,000,000.00) (the "Purchase Price"),
which shall be adjusted as set forth in Section 2.03 below.
2.02 Deposit. To bind this transaction, Buyer concurrent with the date of
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execution of this Agreement has deposited with Seller, either by cashier's check
or wire transfer, the sum of Four Million One Hundred Thousand and No/100
Dollars ($4,100,000.00) (the "Deposit"), which shall be either (a) applied
toward a reduction in the Purchase Price at the Closing Date, (b) returned by
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Seller to Buyer, or (c) forfeited by Buyer to Seller, all as otherwise provided
in this Agreement.
2.03 Adjustments to Purchase Price. The Purchase Price shall be adjusted as
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follows and the resulting amount shall be referred to as the "Adjusted Purchase
Price":
(a) The Purchase Price shall be adjusted upward as follows:
(i) The value of all oil and gas in storage or in pipelines or
the tanks and above the pipeline connection or upstream of the sales meter as of
the Effective Time which is credited to the Interests, such value to be the
market value or, if applicable, the contract price in effect as of the Effective
Time, less taxes and deductions by the purchaser; provided however, Seller shall
remain responsible for the payment of any taxes on this production and all
royalty, overriding royalty, and other non-cost bearing burdens affecting this
production;
(ii) The amount of all verifiable expenditures under applicable
operating agreements or other similar arrangements or agreements and, in the
absence of such agreements, such expenses of the sort customarily billed
thereunder, paid by Seller in connection with the Interests for the period
subsequent to the Effective Time;
(iii) An amount equal to all prepaid expenses attributable to the
Interests that are paid by Seller or any affiliate of Seller prior to the
Closing Date that inure to the benefit of Buyer and that are, in accordance with
generally accepted accounting principles, attributable to the period after the
Effective Time, including without limitation, prepaid ad valorem, property,
production, severance and similar taxes (but not including income taxes) based
upon or measured by the ownership of property or the production of hydrocarbons
or the receipt of proceeds therefrom;
(iv) An amount equal to $1.00 per Mcf of the underproduced gas
imbalance with respect to any gas production, pipeline, storage, processing or
other gas imbalance attributable to the Interests as of the Effective Time; and
(v) Any other amount agreed upon by Seller and Buyer.
(b) The Purchase Price shall be adjusted downward by the following:
(i) The value of proceeds received by Seller from the sale of
oil, gas or other hydrocarbons attributable to the Interests and relating to
production after the Effective Time, less all applicable taxes not reimbursed to
Seller by a purchaser; and less all royalties, overriding royalties and other
non-cost bearing burdens affecting this production;
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(ii) An amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments (but not including
income taxes) based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom accruing to the
Interests prior to the Effective Time;
(iii) The amount of all authorized and verifiable expenditures
paid by Buyer for work actually done and performed in connection with the
Interests for the period prior to the Effective Time;
(iv) An amount equal to $1.00 per Mcf of the overproduced gas
imbalance with respect to any gas production, pipeline, storage, processing or
other gas imbalance attributable to the Interests as of the Effective Time;
(v) The amount of all proceeds from production attributable to
the Interests which are currently held in suspense, if any, for which Buyer
shall assume responsibility;
(vi) The amount of the Deposit; and
(vii) Any other amount agreed upon by Seller and Buyer.
2.04 Allocation of Purchase Price. The Purchase Price shall be allocated
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("Allocated Value") among the Interests including the specifically identified
proved undeveloped locations and behind pipe intervals all as set forth in
Exhibit "B" hereto and which is subject to Seller's approval.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES
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3.01 Representations and Warranties of Seller. Seller represents and
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warrants to Buyer as follows:
(a) Seller is a Texas limited partnership, duly organized, validly
existing and in good standing under the laws of its state of organization, and
is duly qualified to carry on its business in each of the states identified in
Exhibit "A".
(b) Seller has the requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement, to sell the
Interests on the terms described in this Agreement and to perform its
obligations under this Agreement. The consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with, any
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provision of Seller's governing documents, or any agreement or instrument to
which Seller is a party or is bound, or any judgment, decree, order, statute,
rule or regulation applicable to Seller.
(c) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
requisite action on the part of Seller.
(d) This Agreement has been duly executed and delivered on behalf of
Seller, and at the Closing all documents and instruments required hereunder to
be executed and delivered by Seller shall have been duly executed and delivered.
This Agreement does, and such documents and instruments shall, constitute legal
and valid obligations of Seller.
(e) Seller has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by this
Agreement for which Buyer shall have any responsibility whatsoever.
(f) No claim, demand, filing, hearing, notice of violation,
proceeding, notice or demand letter, investigation, administrative proceeding,
civil, criminal or other action, suit or other legal proceeding is pending or,
to the best of Seller's knowledge, threatened, against Seller relating to,
resulting from or affecting the ownership or operation of the Interests.
(g) To the best of Seller's knowledge and subject to the provisions of
this paragraph, (i) the production and expense data heretofore furnished or
caused to be furnished by Seller to Buyer (the "Information"), and any
supplement thereto, was substantially complete and correct as of the date of
such delivery, and (ii) the Information, as of its respective dates and of the
respective dates of its delivery, did not contain a material misstatement of
fact regarding the matters described herein and did not omit it state therein a
material fact necessary to make the statements therein not misleading, in light
of the circumstances under which they were made. Except as set forth in this
Section 3.01(g), no representation or warranty of any kind is made by Seller as
to the Information or with respect to the Interests to which the Information
relates and Buyer expressly agrees that any conclusions drawn therefrom shall be
the result of its own independent review and judgment. The representations
contained in this paragraph shall apply only to matters of fact, and shall not
apply to any information, data, printouts, extrapolations, projections,
documentation, maps, graphs, charts, or tables which reflect, depict, present,
portray, or represent, or which are based upon or derived from, in whole or in
part, interpretation of the Information including, but not limited to, matters
of geological, geophysical, engineering, or scientific interpretation.
(h) The transfer of the Interests to Buyer does not violate any
covenants or restrictions imposed on Seller by any bank or other financial
institution in connection with a mortgage or other instrument, and will not
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result in the creation or imposition of a lien on any portion of the Interests.
(i) Except as disclosed by Seller in writing, to the best of Seller's
knowledge, it is in compliance with all laws, rules, regulations, ordinances,
codes, orders, licenses, concessions and permits pertaining to the Interests.
(j) To the best of Seller's knowledge, Seller has all material
governmental licenses and permits and has properly made all material filings,
necessary or appropriate to obtain those licenses and permits to own and operate
the Interests, and such licenses, permits and filings are in full force and
effect, and no material violations exist in respect of any such licenses,
permits or filings, no proceeding is pending or to the best of Seller's
knowledge is threatened looking toward the challenging, revocation or limitation
of any such licenses, permits or filings.
(k) To the best of Seller's knowledge, (i) the material terms of all
Leases, operating agreements, production sales contracts, farmout agreements and
other contracts or agreements respecting the Interests can be found either of
record in the counties in which the Interests are located or are reflected or
referenced in Seller's files, and (ii) the Contracts are currently in full force
and effect in accordance with their applicable terms.
(l) Seller has received no notice of termination of any of the Leases.
(m) To the best of Seller's knowledge, (i) Seller is not obligated by
virtue of any prepayment arrangement under any contract for the sale of
hydrocarbons, including "take or pay" obligation, hedging or forward sale
agreements, or similar provisions or a production payment or any other
arrangement to deliver hydrocarbons from the Interests at some future time
without then or thereafter receiving full payment therefor, (ii) there are no
production sales agreements currently in effect that cannot be terminated with
sixty (60) days prior written notice, and (iii) there are no calls on production
affecting the Interests.
(n) To the best of Seller's knowledge, information, and belief there
are no surface use or access agreements currently in force and effect that would
materially interfere with oil and gas operations on the Leases.
(o) To best of Seller's knowledge, none of the Wells included within
the Interests has been represented by its operator, either in a pending AFE or
other written proposal, to other well participants as being in need of being
plugged and abandoned.
(p) All ad valorem, property, production, severance and similar taxes
and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom with respect to
the Interests for all periods prior to the Effective Time have been properly
paid and all such taxes and assessments which must be paid prior to the Closing
shall have been properly paid by Seller.
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(q) certain of the representations set forth in this Section 3.01 are
limited to the best of Seller's knowledge to avoid the creation of an automatic
breach as a result of Seller's possible lack of knowledge of certain facts or
circumstances covered by such representations at the time such representations
are made or are deemed to have been made. "Seller's knowledge" is defined for
this Section 3.01 as the knowledge of only the following individuals: Blake T.
Liedtke, W. Russell Brown, Jr., Karl H. Herkert, John N. Black, Greg J. Fox or
Tim C. Lechner.
3.02 Representations and Warranties of Buyer. Buyer represents and warrants
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to Seller as follows:
(a) Buyer is a Montana corporation duly organized, validly existing
and in good standing under the laws of its state of organization and is duly
qualified to carry on its business in each of the states identified in Exhibit
"A".
(b) Buyer has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement, to purchase the
Interests on the terms described in this Agreement and to perform its other
obligations under this Agreement. The consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with, any
provision of Buyer's governing documents, or any agreement or instrument to
which Buyer is a party or is bound, or any judgment, decree, order, statute,
rule or regulation applicable to Buyer.
(c) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
requisite action on the part of Buyer.
(d) This Agreement has been duly executed and delivered on behalf of
Buyer, and at the Closing all documents and instruments required hereunder to be
executed and delivered by Buyer shall have been duly executed and delivered.
This Agreement does, and such documents and instruments shall, constitute legal
and valid obligations of Buyer.
(e) Buyer has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by this
Agreement for which Seller shall have any responsibility whatsoever.
(f) In entering into this Agreement, Buyer has relied solely on the
express representations and covenants of Seller in this Agreement, its
independent investigation of, and judgment with respect to, the Interests and
the advice of its own legal, tax, economic, environmental, engineering,
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geological and geophysical advisors and not on any comments or statements of any
representatives of, or consultants or advisors engaged by Seller or its
representatives.
(g) Prior to the Closing, Buyer intends to satisfy all bonding and
regulatory requirements of all state and federal governmental authorities so
that Buyer is qualified to own the Interests. The consummation of the
transactions contemplated hereby will not cause Buyer to be disqualified as an
owner of state or federal oil, gas and mineral leases, or to exceed any acreage
limitation imposed by any law, statute, rule or regulation.
(h) Buyer is an experienced and knowledgeable investor and operator in
the oil and gas business. Buyer is acquiring the Interests for its own account
and not with a view to, or for offer of resale in connection with, a
distribution thereof, within the meaning of the Securities Act of 1933, 15
U.S.C.ss.77a et seq., and any other rules, regulations and laws pertaining to
the distribution of securities.
(i) Buyer has arranged to have available by the Closing Date
sufficient funds to enable the payment to Seller by wire transfer of the
Adjusted Purchase Price in accordance with Section 7.03 hereof and to otherwise
perform Buyer's obligations under this Agreement.
ARTICLE IV
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COVENANTS
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4.01 Covenants of Seller. Seller covenants and agrees with Buyer that from
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the date hereof to the Closing Date, except (i) as provided herein, (ii) as
required by any obligation, agreement, lease, contract or instrument affecting
the Interests, or (iii) as otherwise consented to in writing by Buyer, Seller
shall:
(a) Give Buyer and its representatives access to, and the right to
copy, at Buyer's expense, all information in its possession relating to the
Interests unless specifically precluded by a third party agreement which shall
include, without limitation, title opinions, abstracts of title, land records,
accounting records, production records, operating expense records, engineering,
geological and geophysical data, development plans and permits, and any other
information of whatsoever kind relating to the production and operation of the
Interests. All such information shall be open to inspection and photocopying at
Seller's offices at any reasonable time during the term of this Agreement, but
until subsequent to the Closing shall remain confidential and shall not be
disclosed to any third party other than Buyer's employees and agents.
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(b) Not, except as set forth in Schedule 4.01(b)attached hereto, (i)
enter into any new agreements or commitments with respect to the Interests which
terms would extend beyond the Closing, (ii) conduct any single capital or
workover project with respect to the Interests in excess of Twenty Thousand and
No/100 Dollars ($20,000.00), (iii) abandon any Well located on the Leases nor
release or abandon all or any portion of any of the Leases, (iv) modify or
terminate any of the existing agreements and (v) encumber, sell or otherwise
dispose of any of the Interests other than personal property that is replaced by
equivalent property or consumed in the normal operation of the Interests.
(c) Take or cause to be taken all such actions as may be necessary or
advisable to consummate and make effective the sale of the Interests and the
transactions contemplated by this Agreement and to assure that as of the Closing
Date it will not be under any material organizational, legal or contractual
restriction that would prohibit or delay the timely consummation of such
transactions.
(d) Cause all the representations and warranties of Seller contained
in this Agreement to be true and correct on and as of the Closing Date.
(e) Promptly notify Buyer (i) if any representation or warranty of
Seller contained in this Agreement is discovered to be or becomes untrue, or
(ii) if Seller fails to perform or comply with any covenant or agreement
contained in this Agreement or it is reasonably anticipated that Seller will be
unable to perform or comply with any covenant or agreement contained in this
Agreement.
(f) Keep and maintain all policies of insurance relating to the
Interests in full force and effect through Closing.
(g) Cooperate with Buyer in the notification of all applicable
governmental regulatory authorities of the transactions contemplated hereby and
cooperate with Buyer in obtaining the issuance by each such authority of such
permits, licenses and authorizations as may be necessary for Buyer to own and
operate the Interests following the consummation of the transactions
contemplated by this Agreement.
(h) Exercise all due diligence in safe-guarding and securely
maintaining all engineering, geological and geophysical data, reports and maps,
all other confidential information, in any medium or form whatsoever, in the
possession of Seller relating to the Interests.
4.02 Covenants of Buyer. Buyer covenants and agrees with Seller that from
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the date hereof to the Closing Date, except (i) as provided herein, or (ii) as
otherwise consented to in writing by Seller, Buyer shall:
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(a) Take or cause to be taken all such actions as may be necessary or
advisable to consummate and make effective the purchase of the Interests and the
transactions contemplated by this Agreement and to assure that as of the Closing
Date it will not be under any material organizational, legal or contractual
restriction that would prohibit or delay the timely consummation of such
transactions.
(b) Cause all the representations and warranties of Buyer contained in
this Agreement to be true and correct on and as of the Closing Date.
(c) Promptly notify Seller (i) if any representation or warranty of
Buyer contained in this Agreement is discovered to be or becomes untrue, or (ii)
if Buyer fails to perform or comply with any covenant or agreement contained in
this Agreement or it is reasonably anticipated that Buyer will be unable to
perform or comply with any covenant or agreement contained in this Agreement.
ARTICLE V
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TITLE MATTERS, ENVIRONMENTAL MATTERS,
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CASUALTY LOSS AND ABANDONMENT
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5.01 Seller's Title. Seller represents to Buyer that Seller's title to the
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Interests as of the Effective Time is (and as of the Closing shall be)
"Marketable Title" as defined in Section 5.02 hereinbelow.
5.02 Definition of Marketable Title. As used in this Agreement, the term
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"Marketable Title" shall mean, as to each of the Interests including the proved
undeveloped locations and behind pipe intervals specifically identified on
Exhibit B, that the title acquired by Buyer:
(a) Will entitle Buyer to receive not less than the Net Revenue
Interests set forth in Exhibit "A" and a like share of all hydrocarbons
produced, saved and marketed from the Interests throughout the productive life
of the Interests.
(b) Will obligate Buyer to bear not more than that percentage of the
costs and expenses related to the maintenance and development of and operation
of the Working Interests as set forth on Exhibit "A" and a like share
attributable thereto throughout the productive life of the Interests.
(c) Is free and clear of all liens, security interests, encumbrances,
burdens and claims of any kind, except for Permitted Encumbrances.
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5.03 Definition of Permitted Encumbrances. As used herein, the term
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"Permitted Encumbrances" shall mean:
(a) Lessors' royalties, overriding royalties, reversionary interests
and similar burdens, whether recorded or unrecorded, that do not operate to
reduce the Net Revenue Interests set forth in Exhibit "A".
(b) Division orders and sales contracts terminable without penalty
upon no more than thirty (30) days' notice to the purchaser.
(c) Except as provided in Section 5.06 below, preferential rights to
purchase and required third-party consents and similar agreements with respect
to which waivers or consents are obtained under this Agreement prior to the
Closing from the appropriate parties or the appropriate time period for
asserting the right has expired prior to the Closing without an exercise of such
right.
(d) Encumbrances relating to the Interests that arise under operating
agreements to secure payment of amounts not yet delinquent and are of a type and
nature customary in the oil and gas industry.
(e) Encumbrances relating to the Interests securing payments to
mechanics and materialmen and encumbrances securing payment of taxes or
assessments that are, in either case, not yet delinquent or, if delinquent, are
being contested in good faith in the normal course of business and Seller shall
have agreed to remain responsible therefore if such arose before the Effective
Time.
(f) All rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the sale or conveyance
of oil and gas leases or interests therein if they are customarily obtained
subsequent to the sale or conveyance.
(g) Conventional rights of reassignment obligating Seller to reassign
its interest in any portion of the Interests to a third party in the event it
intends to release or abandon such Interests prior to the expiration of the
primary term or other termination of such Interests.
(h) Easements, rights of way, servitudes, permits, surface leases,
surface use restrictions and other surface uses and impediments on, over or in
respect to any of the Interests that do not, taken as a whole, materially
interfere with the operation, value or use of the Interests.
(i) All rights reserved to or vested in any governmental, statutory or
public authority to control or regulate any of the Interests in any manner, and
all applicable laws, rules and orders of governmental authority provided that
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Seller's ownership or operation of the Interests is not in violation thereof.
(j) The terms and conditions of all Leases and all agreements to which
the Interests are subject provided that such do not operate to reduce the Net
Revenue Interests attributable to the Interests.
(k) Such Title Defects affecting the Interests which Buyer fails to
deliver to Seller in writing as provided in Section 5.05(b) below.
(l) Liens in favor of Compass Bank if released at Closing.
(m) All revesionary interests set forth in Schedule 5.03(m) attached
hereto.
5.04 Definition of Title Defect. As used in this Agreement, the term "Title
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Defect" shall mean any defect which renders title to an Interest, as herein
defined, less than Marketable Title.
5.05 Title Procedure.
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(a) As used herein, "Title Defect Amount" shall mean, with respect to
any reduction of the Net Revenue Interest set forth on Exhibit "A" hereto, an
amount calculated by multiplying the reduction in the Net Revenue Interest by
the Allocated Value for such affected Interests; with respect to any increase in
the Working Interest set forth on Exhibit "A" hereto and assuming no
corresponding increase in Net Revenue Interest, an amount calculated by
multiplying the increase in the Working Interest by the Allocated Value for such
affected Interests; and with respect to any Title Defect that does not cause the
Net Revenue Interest set forth on Exhibit "A" to decrease or cause the Working
Interest set forth on Exhibit "A" to increase, an amount determined by
evaluating the portion of the Interests affected by such Title Defect, the legal
effect of the Title Defect, and the potential economic effect of the Title
Defect over the life of the affected Interests. The Title Defect Amount as to
any particular Interest, however, shall never exceed the Allocated Value
therefor. Furthermore, in the event it is determined that the Net Revenue
Interests for any affected Interest is greater than set forth on Exhibit "A"
hereto or the Working Interests for any affected Interest is less without a
corresponding decrease in Net Revenue Interest than set forth on Exhibit "A"
hereto, the Purchase Price shall be proportionately adjusted upward by
multiplying the increase in the Net Revenue Interest by the Allocated Value for
such affected Interest or multiplying the decrease in the Working Interest by
the Allocated Value for such affected Interest. Increases or decreases in the
Working Interest without a corresponding increase or decrease in the Net Revenue
Interest shall be evaluated by rerunning the economics for the affected Interest
to determine the impact on the Allocated Value for such affected Interests.
Notwithstanding any terms contained in this Agreement to the contrary, no
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adjustment to the Purchase Price for Title Defects and Environmental Defects
shall be made unless the sum of such Title Defect Amounts and Environmental
Defect Amounts is more than Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00). This $250,000.00 sum is a threshold, not a deductible, and if
this threshold is exceeded, the Purchase Price shall be adjusted by the total
sum of these defects. In addition, this threshold amount shall apply
independently to increases in the Purchase Price for the reasons set forth in
this Section 5.05(a), and the amounts attributable to such increases shall not
be netted against the downward adjustments to the Purchase Price to determine
whether or not a Purchase Price adjustment should be made. Notwithstanding any
terms contained in this Agreement to the contrary, no Title Defect shall be
asserted by Buyer unless the Title Defect Amount is at least Twenty Thousand and
No/100 Dollars ($20,000.00). This $20,000.00 threshold shall likewise apply to
any upward adjustment sought by Seller under this Section 5.05(a).
(b) If Buyer discovers any Title Defect, Buyer shall give Seller
notice of such Title Defect no later than fifteen (15) days prior to the Closing
Date. Such notice shall be in writing and shall include (i) a description of the
Title Defect and (ii) the Title Defect Amount therefor. Buyer shall be deemed to
have waived all Title Defects to which Buyer has not given timely notice to
Seller thereof.
(c) Seller shall notify Buyer in writing no later than five (5) days
before the Closing Date whether it elects to cure the alleged Title Defect. If
Seller has elected to cure the Title Defect, then the Interests subject to the
Title Defect shall not be assigned at the Closing and Seller shall use
commercially reasonable efforts to cure such Title Defect during a period ending
sixty (60) days after Closing. Notwithstanding the foregoing, Seller shall be
under no obligation to cure any Title Defect unless Seller otherwise expressly
agrees in writing to cure such Title Defect.
(d) With respect to any Title Defect that Seller elects not to cure,
Seller shall have the option to:
(i) Exclude the Interest, including pipelines and other personal
property necessary to operate the particular Interest subject to the Title
Defect, in which event the Purchase Price shall be reduced by the Allocated
Value of the excluded Interest; or
(ii) If Buyer nad Seller so agree, sell the Interest subject to
such Title Defect to Buyer and the Purchase Price shall be reduced by the Title
Defect Amount.
(e) Notwithstanding any terms contained in this Agreement to the
contrary, in the event the aggregate amount of (i) the Title Defects and (ii)
the Environmental Defect Amounts and which Seller does not timely agree to cure,
excluding exercised preferential rights to purchase exceeds twenty percent (20%)
of the Purchase Price, either Seller or
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Buyer may elect to terminate this Agreement and Buyer shall be entitled to an
immediate refund of the Deposit.
5.06 Consents and Preferential Rights.
--------------------------------
(a) If any third party consent to the sale and transfer of the
Interests is not obtained prior to the Closing, Buyer shall not treat that
portion of the Interests subject to such consent requirement as a Title Defect
if such consent is customarily secured after the Closing or such consent does
not materially affect the value of the affected Interests if such consent were
withheld.
(b) If any of the Interests are subject to a preferential right to
purchase, Seller shall in a good faith, prior to the Closing Date, attempt to
notify each third party which holds a preferential right to purchase covering
that portion of the Interests subject thereto. If the notice period under any
preferential right to purchase has not expired prior to the Closing Date, Buyer
shall nevertheless purchase that portion of the Interests which may be affected
by the exercise of such preferential right but the Interests subject to such
unexpired preferential right shall not be treated as a Title Defect. If after
the Closing any party holding a preferential right to purchase elects to
exercise same, Buyer shall then coordinate with Seller in connection with the
execution by such third party of a purchase and sale agreement substantially in
the form hereof. Buyer shall be due any consideration paid by such third party
upon the exercise of such preferential right to purchase in exchange for Buyer
delivering such third party an assignment for that portion of the Interests
affected by the exercise of such preferential right.
5.07 Environmental Procedure.
-----------------------
(a) Prior to the Closing Date, Buyer may conduct a field inspection of
the Interests and Buyer may further secure, at its sole risk, cost and expense,
an environmental audit of all or any of the Interests. If obtained, Buyer shall
immediately furnish a copy of such environmental audit to Seller and the
contents of such environmental audit shall remain confidential unless required
to be disclosed by any rule, order or governmental proceeding.
(b) As used herein, "Environmental Defect" shall mean any material
environmental defect relating to the Interests in the nature of environmental
pollution or contamination, including pollution of the soil, ground water or the
air, and which is a violation of environmental or land use laws, rules,
regulations, or orders of appropriate state or federal regulatory agencies.
(c) As used herein, "Environmental Defect Amount" means the cost to
remediate such Environmental Defect in accordance with applicable environmental
laws. Notwithstanding any terms contained in this Agreement to the contrary, no
adjustment to the Purchase Price shall be made unless the sum of such Title
-15-
Defect Amounts and Environmental Defect Amounts is more than Two Hundred Fifty
Thousand and NO/100 Dollars ($250,000.00). This $250,000.00 sum is a threshold,
not a deductible, and if this threshold is exceeded, the Purchase Price shall be
adjusted by the total sum of these defects. In addition, this threshold amount
shall apply independently to increases in the Purchase Price for the reasons set
forth in this Section 5.07(a), and the amounts attributable to such increases
shall not be netted against the downward adjustments to the Purchase Price to
determine whether or not a Purchase Price adjustment should be made.
Notwithstanding any terms contained in this Agreement to the contrary, no
Environmental Defect shall be asserted by Buyer unless the Environmental Defect
Amount is at least Twenty Thousand and No/100 Dollars ($20,000.00).
(d) If Buyer discovers any Environmental Defect, Buyer shall give
Seller notice of such Environmental Defect no later than fifteen (15) days prior
to the Closing Date. Such notice shall be in writing and shall include (i) a
description of the Environmental Defect and (ii) the Environmental Defect Amount
therefor. Buyer shall be deemed to have waived all Environmental Defects to
which Buyer has not given timely notice to Seller thereof.
(e) Seller shall notify Buyer in writing no later than five (5) days
before the Closing Date whether it elects to cure the alleged Environmental
Defect. If Seller has elected to cure the Environmental Defect, then the
Interest subject to the Environmental Defect shall not be assigned at the
Closing and Seller shall use commercially reasonable efforts to cure such
Environmental Defect during a period ending one hundred eighty (180) days after
Closing. Notwithstanding the foregoing, Seller shall be under no obligation to
cure any Environmental Defect unless Seller otherwise expressly agrees in
writing to cure such Environmental Defect.
(f) With respect to any Environmental Defect that Seller elects not to
cure, Seller shall have the option to:
(i) Exclude the Interest, including pipelines and other personal
property necessary to operate the particular Interest subject to the
Environmental Defect, in which event the Purchase Price shall be reduced by the
Allocated Value of the excluded Interest; or
(ii) If Buyer and Seller shall so agree, sell the Interest
subject to the Environmental Defect to Buyer and the Purchase Price shall be
reduced by the Environmental Defect Amount. Notwithstanding any terms in the
Section 5.07 to the contrary, with respect to the Watt No. 2 well and the Tveit
Saltwater Disposal System ("Tveit et al Properties"), if Buyer asserts an
Environmental Defect on the Tveit it al Properties, Buyer shall have the option,
but not the obligation to accept an indemnity from Seller which is acceptable to
Buyer
-16-
(g) Notwithstanding any terms contained in this Agreement to the
contrary, in the event the aggregate amount of (i) the Environmental Defect
Amounts and (ii) the Title Defect Amounts set forth in Section 5.05 hereinabove,
and which Seller does not timely agree to cure, exceeds twenty percent (20%) of
the Purchase Price, either Seller or Buyer may elect to terminate this Agreement
and Buyer shall be entitled to an immediate refund of the Deposit.
5.08 Casualty Loss. If, prior to the Closing, all or any portion of the
--------------
Interests shall be destroyed by fire or other casualty, or if any portion of the
Interests shall be taken in condemnation or under the right of eminent domain,
or if proceedings for such purposes shall be pending or threatened (collectively
"Casualty Losses"), except as provided below, this Agreement shall remain in
full force and effect notwithstanding any such destruction or taking, and Seller
shall at Closing pay to Buyer all sums paid to Seller by reason of such
destruction or taking. In addition, Seller shall assign, transfer and set over
unto Buyer all of the right, title and interest of Seller in and to any unpaid
awards or other payments arising out of such destruction or taking. Seller shall
not voluntarily compromise, settle or adjust any amounts payable by reason of
such destruction or taking without first obtaining the written consent of Buyer.
Notwithstanding the foregoing, in the event the total value of Casualty Losses
exceeds twenty percent (20%) of the Purchase Price, either Buyer or Seller may
elect to terminate this Agreement and Buyer shall be entitled to an immediate
refund of the Deposit. In addition, the Purchase Price shall be reduced by the
amount of Seller's deductible under any applicable policy of insurance or other
sums not covered by Seller's insurance or any shortfall in the unpaid awards
insofar as the same pertain to payments arising out of the destruction or taking
of the affected Interests.
5.09 Plugging and Abandonment. Upon Closing, Buyer shall assume all of
-------------------------
Seller's plugging, replugging, abandonment, removal, disposal and restoration
obligations associated with the Interests acquired hereunder. Such obligations
being assumed shall include, but not be limited to, all necessary and proper
plugging and abandonment and/or removal and disposal of all of the Wells,
whether pre-existing or drilled by Seller, and all structures, personal property
and equipment located on or associated with the Leases, the necessary and proper
capping and burying of all associated flow lines, and any necessary disposal of
naturally occurring radioactive material (NORM) or asbestos except those matters
which are asserted as Environmental Defects and which remain uncured. All
plugging, replugging, abandonment, removal, disposal and restoration operations
shall be in compliance with applicable laws, rules and regulations and conducted
in a good and workmanlike manner.
5.10 Disclaimer of Warranties. THE EXPRESS REPRESENTATIONS AND WARRANTIES
------------------------
OF SELLER CONTAINED IN THIS AGREEMENT (OR IN THE ASSIGNMENT TO BE EXECUTED
PURSUANT TO THIS AGREEMENT) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
-17-
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND
SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND
WARRANTIES, EXCEPT THAT SELLER WARRANTS TITLE TO THE INTERESTS BY, THROUGH, AND
UNDER SELLER, BUT NOT OTHERWISE. WITHOUT LIMITATION OF THE FOREGOING, THE
INTERESTS SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE RELATING TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS, OR MERCHANTABILITY OF ANY EQUIPMENT OR
ITS FITNESS FOR ANY PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY,
OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR
WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT
THE INTERESTS FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING, BUT NOT LIMITED
TO, CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE, OR DISPOSAL OF
HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS OR OTHER MANMADE FIBERS OR
NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM") IN, ON, OR UNDER THE
INTERESTS. BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE INTERESTS, AND
BUYER SHALL, EXCEPT AS PROVIDED OTHERWISE HEREIN, ACCEPT ALL OF THE SAME "AS IS,
WHERE IS". WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AS TO THE ACCURACY OR
COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR
MATERIALS NOW HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN
CONNECTION WITH THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, PRICING
ASSUMPTIONS OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE
TO THE INTERESTS OR THE ABILITY OR POTENTIAL OF THE INTERESTS TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE INTERESTS OR ANY OTHER
MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER, OR BY SELLER'S AGENTS
OR REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION, AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR
OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST
SELLER, AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO
THE MAXIMUM EXTENT PERMITTED BY LAW.
-18-
ARTICLE VI
----------
CONDITIONS TO CLOSING
---------------------
6.01 Conditions to Obligations of Seller. The obligations of Seller to
-------------------------------------
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, or waiver by Seller, of the condition that all representations and
warranties of Buyer contained in this Agreement shall be true in all material
respects at and as of the Closing as if such representations and warranties were
made at and as of the Closing, and Buyer shall have performed and satisfied all
covenants and agreements required by this Agreement to be performed and
satisfied by Buyer at or prior to the Closing.
6.02 Conditions to Obligations of Buyer. The obligations of Buyer to
-------------------------------------
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, or waiver by Buyer, of the condition that all representations and
warranties of Seller contained in this Agreement shall be true in all material
respects at and as of the Closing as if such representations and warranties were
made at and as of the Closing, and Seller shall have performed and satisfied all
covenants and agreements required by this Agreement to be performed and
satisfied by Seller at or prior to the Closing.
ARTICLE VII
-----------
CLOSING
-------
7.01 Date of Closing. Subject to the conditions stated in this Agreement,
---------------
the consummation of the transactions contemplated by this Agreement (the
"Closing") shall be held on November 29, 2001, at 10:00 a.m., or such earlier
date as the parties shall agree in writing. Said date shall be referred to as
the "Closing Date".
7.02 Place of Closing. The Closing shall be held at the offices of Seller,
----------------
or at such other place as Buyer and Seller may agree upon in writing.
7.03 Closing Obligations. At the Closing, the following events shall occur,
-------------------
each being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:
(a) Seller shall execute, acknowledge and deliver (in sufficient
counterparts to facilitate recording) the Assignment, Conveyance and Bill of
Sale ("Assignment") conveying the Interests to Buyer in substantially the form
attached as Exhibit "C" hereto. As appropriate, Seller shall also execute,
acknowledge and deliver separate assignments of the Interests on officially
-19-
approved forms, in sufficient counterparts, to satisfy applicable statutory and
regulatory requirements.
(b) Seller and Buyer shall execute a settlement statement (the
"Preliminary Settlement Statement") prepared by Seller that shall set forth the
Preliminary Amount (as hereinafter defined) and each adjustment and the
calculation of such adjustments used to determine such amount. The term
"Preliminary Amount" shall mean the Purchase Price adjusted as provided in
Section 2.03 using for such adjustments the best information then available.
(c) Buyer shall deliver to Seller a cashier's check or wire transfer
for the Preliminary Amount.
(d) Seller shall deliver to Buyer exclusive possession of the
Interests.
(e) Seller shall prepare and both it and Buyer shall execute,
acknowledge and deliver transfer orders or letters in lieu thereof directing all
purchasers of production to make payment of proceeds attributable to production
from the Interests after the Effective Time to Buyer.
(f) Seller shall deliver to Buyer the original Records. Buyer agrees
to furnish Seller at Seller's cost after the Closing with a copy of any of the
Records upon written request by Seller.
(g) If Seller is the operator of any of the Interests, Seller and
Buyer shall execute the appropriate regulatory forms transferring operatorship
of the Interests to Buyer and Seller shall file such forms subject to the
provisions of Article X. hereinbelow.
(h) Seller shall provide to Buyer a listing showing all proceeds from
production attributable to the Interests which are currently held in suspense
for any reason and Buyer shall receive a credit in the amount of such suspended
funds in connection with the final closing statement as provided hereunder.
Buyer shall be responsible for proper distribution of all such suspended
proceeds to the parties lawfully entitled to them, and indemnify and hold Seller
harmless against any claim, action or liability (including court costs and
attorney's fees) associated with claims against such suspended funds based on
Buyer's actions or inactions in connection with such funds as of and after the
Closing Date. Seller shall indemnify and hold Buyer harmless against any claim,
action or liability (including court costs and attorneys' fees) associated with
any claims against such suspended funds based on Seller actions or inactions in
connection with such funds prior to the Closing Date.
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ARTICLE VIII
------------
OBLIGATIONS AFTER CLOSING
-------------------------
8.01 Post-Closing Adjustments. After the Closing, Seller and Buyer shall
-------------------------
make available to each other all accounting records necessary for Seller to
prepare within 120 days of Closing, in accordance with this Agreement, a
statement (the "Final Settlement Statement") setting forth each adjustment or
payment which was not finally determined as of the Closing and showing the
calculation of such adjustments. As soon as practicable after receipt of the
Final Settlement Statement, Buyer shall deliver to Seller a written report
containing any changes which Buyer proposes be made to the Final Settlement
Statement. The parties shall undertake to agree with respect to the amounts due
pursuant to such post-closing adjustment no later than one hundred fifty (150)
days after the Closing. If such post-closing adjustment has not been agreed to
within one hundred fifty (150) days after the Closing, either party may seek to
enforce any rights it claims hereunder. The date upon which such agreement is
reached or upon which the Adjusted Purchase Price is established, shall be
referred to as the "Final Settlement Date." In the event that (i) the Adjusted
Purchase Price is more than the Preliminary Amount, Buyer shall deliver to
Seller or to Seller's account the amount of such difference in immediately
available funds, or (ii) the Adjusted Purchase Price is less than the
Preliminary Amount, Seller shall deliver to Buyer or to Buyer's account the
amount of such difference in immediately available funds. Payment by Buyer or
Seller shall be made within five (5) days after the Final Settlement Date. To
the extent not accounted for in the computation of the Adjusted Purchase Price,
all uncollected accounts receivable attributable to the Interests accruing on or
after the Effective Time shall be assigned to Buyer.
8.02 Sales Taxes and Recording Fees. Buyer shall pay all sales taxes
occasioned by the sale of the Interests. Buyer shall pay all documentary, filing
and recording fees required in connection with the filing and recording of all
assignments.
8.03 Indemnification. After the Closing, Buyer and Seller shall indemnify
---------------
each other as follows:
(a) Including any "Environmental Claim" as defined in Section 8.03(c)
hereinbelow, Buyer shall defend, indemnify and save and hold harmless Seller
against any and all costs, expenses, claims, demands and causes of action of
whatsoever kind or character, including court costs and attorneys' fees, arising
out of any operations conducted, commitment made or any action taken or omitted
with respect to the Interests, which accrue or relate to times on and after the
Effective Time.
(b) Excluding (i) any "Environmental Claim" as defined in Section
8.03(c) hereinbelow, Seller shall defend, indemnify and save and hold harmless
-21-
Buyer against any and all costs, expenses, claims, demands and causes of action
of whatsoever kind or character, including court costs and attorneys' fees,
arising out of any operations conducted, commitment made or any action taken or
omitted with respect to the Interests, which accrue or relate to times prior to
the Effective Time.
(c) Notwithstanding any terms contained in Sections 8.03(a) and (b)
above, but in furtherance of same, Buyer expressly agrees to fully and promptly
pay, perform and discharge, defend, indemnify and hold Seller harmless from and
against any and all costs, expenses, claims, demands and causes of action of
whatsoever kind or character, including court costs and attorneys' fees,
resulting from any "Environmental Claim" as hereinafter defined arising out of
any operations conducted, commitment made or any action taken or omitted at any
time, whether accruing or relating to times prior to or after the Effective
Time, with respect to the Interests operated by Buyer. For purposes of this
paragraph "Environmental Claim" shall mean any claim, demand or cause of action
asserted by any governmental agency or any person, corporation or other entity
for personal injury (including sickness, disease or death), property damage or
damage to the environment resulting from the discharge or release of any
chemical, material or emission into one or more of the environmental media at or
in the vicinity of the Interests.
(d) Notwithstanding the provisions of Section 8.03(c), if after the
Closing, but in no event later than one (1) year after the Closing Date, any
third party other than Buyer asserts an Environmental Claim which occurred prior
to the Effective Time and the cost to remiediate same in accordance with
applicable environmental laws exceeds Twenty Thousaand and No/100 Dollars
($20,000.00) ("Retained Environmental Liability"), Buyer may notify Seller in
writing to assume such claim relating to the Retained Environmental Liability in
accordance with the terms of this section 8.03(d). Such written notice shall
describe the details known to Buyer of the claim relating to the Retained
Environmental Liability and Buyer shall concurrently furnish to Seller all
information available to Buyer relating to such claim. If Buyer timely notifies
Seller of such claim relating to a Retained Environmental Liability on or before
one (1) year after the Closing Date, Seller shall retain the risk, cost, expense
and liability related to such Retained Environmental Liability. It is agreed
that Seller and Buyer will cooperate with each other in connection with the
dispositon of the Retained Environmental Liability which shall require either
(i)remediation, (ii)reacquisition of the affected Interests by Seller (taking
into consideration the Allocated Value therefor less net profits owed or
recieved by Buyer and the value added by subsequent development or operations),
or (iii) such other dispostion as Seller and Buyer shall mutually agree.
However, for Interests which were operated by Seller as of the Effecitve Time,
if Seller and Buyer are unable to agree upon the dispostion of the Retained
Environmental Liability, Seller shall be required to remediate same at its sole
risk, cost, expense and liability in accordance with applicable environmental
law and for non-operated Interests opereated by Seller as of the Effective Time,
Seller shall pay to Buyer the share of costs required to remediate the Retained
Environmental Liability. Notwithstanding the foregoing, if the parties cannot
agree on the cost to remediate a Retained Environmental Liability, such issue
shall be submitted to binding arbitration in accordance with Section 11.12
herein.
(e) THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS PROVIDED
FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LOSSES, COSTS,
EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE GROSS, ACTIVE,
PASSIVE OR CONCURRENT NEGLIGENCE, OR OTHER FAULT OF ANY INDEMNIFIED PARTY. BUYER
AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE
RULE AND IS CONSPICUOUS.
-22-
8.04 Further Assurances. Seller and Buyer shall execute, acknowledge and
-------------------
deliver or cause to be executed, acknowledged and delivered such instruments and
take such other action as may be necessary or advisable to carry out their
obligations under this Agreement and under any exhibit, document, certificate or
other instrument delivered pursuant hereto.
8.05 Survival. The representations, warranties, covenants, agreements and
--------
indemnities contained in this Agreement shall terminate at the Closing except
for the provisions of Section 5.09, Section 5.10 and all of Article VIII., X.
and XI.
8.06 Limitation on Seller's Liability. After the Closing, any assertion by
--------------------------------
Buyer that Seller is liable under this Agreement (a) for the inaccuracy of any
representation or warranty, (b) for breach of any covenant, (c) for indemnity
under the terms of this Agreement, or (d) otherwise in connection with the
transactions contemplated in this Agreement, must be made by Buyer in writing
and must be given to Seller on or prior to the last business day preceding the
first anniversary of the Closing Date. The notice shall state the facts known to
Buyer that give rise to such notice in sufficient detail to allow Seller to
evaluate the assertion of Buyer.
8.07 Devon Underporduced Imbalance. Seller is periodically paid revenues
-------------------------------
that relate to an underproduced gas imbalance of approximately 390,000 MCF owned
by Devon SFS Operating, Inc.("Devon") relating to certain wells in the Standard
Draw Field of Wyoming and which underproduced positon is owned by Devon,
Seller's predecessor in title ("Devon Underproduced Imbalance"). Seller forwards
these revenues received and attributable to the Devon Underproduced Imbalance to
Devon. The Devon Underproduced Imbalance is not an underproduced gas imbalance
owned by Seller nor does it affect the Interests. If Closing occurs, Buyer shall
forward any payments it recieves that relate to the Devon Underproduced
Imbalance to Devon, or its successors and assigns.
ARTICLE IX
----------
TERMINATION OF AGREEMENT
------------------------
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9.01 Termination. This Agreement and the transactions contemplated hereby
-----------
may be terminated in the following instances:
(a) By Buyer if any condition set forth in Section 6.02 above shall
not be satisfied on or before the Closing, or Buyer otherwise elects to
terminate this Agreement pursuant to Sections 5.05(e) or 5.07(g) of this
Agreement.
(b) By Seller if any condition set forth in Section 6.01 above shall
not be satisfied on or before the Closing or Seller otherwise elects to
terminate this Agreement pursuant to Sections 5.05(e) or 5.07(g) of this
Agreement.
(c) By the mutual written agreement of Buyer and Seller.
9.02 Return or Forfeiture of Deposit. If this Agreement is terminated by
--------------------------------
Buyer in accordance with Section 6.02 above and Buyer is not in a material
breach of any terms of this Agreement, Seller shall immediately refund to Buyer
the Deposit whereupon this Agreement shall terminate and be of no further force
and effect. Alternatively, if this Agreement is terminated by Seller in
accordance with Section 6.01 above and Seller is not in a material breach of any
terms of this Agreement, Buyer shall forfeit the Deposit to Seller as liquidated
damages, and not as a penalty, whereupon this Agreement shall terminate except
for Section 9.03 below.
9.03 Return of Information. If this Agreement is terminated, Buyer shall
----------------------
return to Seller all information and material delivered to Buyer by Seller
pursuant to the terms of this Agreement.
9.04 Liabilities upon Termination. If this Agreement is terminated for any
----------------------------
reason or is breached, Seller's or Buyer's legal or equitable remedies shall be
limited to actual damages for the breach or failure of any representation,
warranty, covenant or agreement contained herein which shall in no event exceed
the Purchase Price and which shall exclude all consequential or punitive
damages. Seller and Buyer shall also each retain the right to enforce specific
performance of this Agreement.
ARTICLE X
---------
INTERIM OPERATIONS
------------------
If Seller is the operator of the Interests, Seller shall continue to
operate the Interests during the period between the Effective Time and 7:00 a.m.
on the first day of the month following the Closing Date (the "Interim Period"),
but Seller shall not have any obligation to operate the Interests after the
Interim Period. Seller shall operate the Interests during the Interim Period in
-24-
a prudent manner consistent with generally accepted industry practices and
standards, applicable laws and regulations, and all applicable lease and other
agreement terms, but shall not be liable to Buyer except for gross negligence or
willful misconduct. Seller shall be entitled (i) to charge Buyer the COPAS
overhead rates under existing operating agreements, or where none exist, a rate
of $800.00 per well during the Interim Period proportionately reduced to the
affected Interests and (ii) to retain any overhead fees owing or paid by any
third party non-operators attributable to the operations during the Interim
Period. Seller makes no representation or warranty that Buyer will become
operator of any portion of the Interests, as that matter is controlled by the
applicable operating agreements and governmental regulatory requirements.
ARTICLE XI
----------
MISCELLANEOUS
-------------
11.01 Like Kind Exchange. The parties shall each have the option to
-------------------
complete all or a portion of the sale and purchase of the Interests as part of a
tax-deferred exchange under Section 1031 of the Internal Revenue Code of 1986,
as amended. The parties agree to cooperate in documenting and completing such
exchange, including, without limitation, consenting to an assignment of all or a
portion of a party's rights, title, interest, duties, or obligations under this
Agreement to a third party accommodator or Qualified Intermediary (as such term
is defined in Section 1031). Notwithstanding the foregoing, Buyer shall take
title to the Interests directly from Seller pursuant to the Assignment and shall
pay Seller the Purchase Price therefor, and each party shall remain liable for
its obligations to the other party hereunder.
11.02 Expenses. Except as otherwise specifically provided in this
--------
Agreement, all fees, costs and expenses incurred by Buyer or Seller in
negotiating this Agreement or in consummating the transactions contemplated by
this Agreement shall be paid by the party incurring the same, including without
limitation, legal and accounting fees, costs and expenses.
11.03 Notices. All notices and communications required or permitted under
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this Agreement shall be in writing and shall be effective when receive by mail,
telecopy or hand delivery as follows:
If to Seller:
------------
Choctaw II Oil & Gas, Ltd.
808 Travis, Suite 1700
Houston, Texas 77002
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Attn: Mr. W. Russell Brown, Jr., President
Telephone: 713-632-0222
Telecopy: 713-227-1007
If to Buyer:
-----------
Nance Petroleum Corporation
550 North 31st Street, Suite 500
Billings, MT 59011
Attn: Ron Santi, Vice President, Land
Telephone: 406-245-6248
Telecopy: 406-245-9106
With a copy to:
St. Mary Land & Exploration Company
1776 Lincoln St., Suite 1100
Denver, Colorado 80203
Attn: Randy Pharo, Vice President, Land & Legal
Telephone: 303-863-4313
Telecopy: 303-863-1040
Either party may, by written notice so delivered to the other, change the
address to which notice shall thereafter be made.
11.04 Amendment. This Agreement may not be altered or amended, nor any
---------
rights hereunder be waived, except by an instrument in writing executed by the
party or parties to be charged with such amendment or waiver. No waiver of any
term, provision or condition of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
other term, provision or condition of this Agreement.
11.05 Assignment. Neither Seller nor Buyer may assign any portion of its
----------
rights or delegate any portion of its duties or obligations under this Agreement
without the prior written consent of the other party.
11.06 Announcements. Prior to Closing Seller and Buyer shall consult with
-------------
each other with regard to all press releases and other announcements concerning
this Agreement or the transaction contemplated hereby and, except as may be
required by applicable laws or regulations of any governmental agency, neither
Buyer nor Seller shall issue any such press release or make any other
announcement without the prior written consent of the other party.
11.07 Generality of Provisions. The specificity of any representation,
------------------------
warranty, covenant, agreement or indemnity included or provided in this
Agreement, or in any exhibit, document, certificate or other instrument
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delivered pursuant hereto, shall in no way limit the generality of any other
representation, warranty, covenant, agreement or indemnity included or provided
in this Agreement, or in any exhibit, document, certificate or other instrument
delivered pursuant hereto.
11.08 Headings. The headings of the articles and sections of this Agreement
--------
are for guidance and convenience of reference only and shall not limit or
otherwise affect any of the terms or provisions of this Agreement.
11.09 Counterparts. This Agreement may be executed by Buyer and Seller in
------------
any number of counterparts and shall be binding upon each party executing same
whether or not executed by all parties. Each of the counterparts shall be deemed
an original instrument, but all of which together shall constitute but one and
the same instrument.
11.10 References. References made in this Agreement, including use of a
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pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships or corporations. As used in this
Agreement, "person" shall mean any natural person, corporation, partnership,
trust, estate or other entity. As used in this Agreement, "affiliate" of a
person shall mean any partnership, joint venture, corporation or other entity in
which such person has an interest or which controls, is controlled by or is
under common control of such person.
11.11 Governing Law. This Agreement, and the transactions contemplated
-------------
hereby, shall be construed in accordance with, and governed by, the laws of the
State of Texas and venue shall be in Harris County, Texas.
11.12 Binding Arbitration. On the request of any party hereto, whether made
-------------------
before or after the institution of any legal proceeding, any action, dispute,
claim or controversy of any kind, now existing or hereafter arising, between any
of the parties hereto in any way arising out of, pertaining to or in connection
with this Agreement (a "Dispute") shall be resolved by binding arbitration in
accordance with the terms hereof. Any party may, by summary proceedings, bring
an action in court to compel arbitration of any Dispute. Any arbitration shall
be administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this section, the Commercial Arbitration Rules of
the AAA and, to the maximum extent applicable, the Federal Arbitration Act.
Judgment on any award rendered by the arbitrators may be entered in any court
having jurisdiction. Any arbitration shall be conducted before one (1)
arbitrator selected by Buyer and Seller. The arbitrator shall be knowledgeable
in the subject matter of the Dispute. If the parties cannot agree on the
arbitrator within thirty (30) days after the request for an arbitration, then
three (3) arbitrators shall be requred to conduct the arbitration with one
(1)arbitrator selected by Buyer, one (1) arbitrator selected by Seller, and the
two (2) arbitrators selecting the third arbitrator. The arbitrator(s) may engage
engineers, accountants or other consultants that the arbitrator deems necessary
to render a conclusion in the arbitration proceeding. To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within one
hundred eighty (180) days of the filing of the Dispute with the AAA. Arbitration
proceedings shall be conducted in Houston, Texas. The arbitrator(s) shall be
empowered to impose sanctions and to take such other actions as the
arbitrator(s) deems necessary to the same extent a judge could impose sanctions
or take such other actions pursuant to the Federal Rules of Civil Procedure and
applicable law. At the conclusion of any arbitration proceeding, the
arbitrator(s) shall make specific written findings of fact and conclusions of
law and such shall be final and not appealable. The arbitrator(s) shall have the
power to award recovery of all costs and fees to the prevailing party. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by applicable law.
All fees of the arbitrator(s) and any engineer, accountant or other consultant
engaged by the arbitrator(s) shall be paid by Buyer and Seller equally unless
otherwise awarded by the arbitrator(s).
11.13 Entire Agreement. This Agreement (including the exhibits hereto)
-----------------
constitutes the entire understanding between the parties with respect to the
subject matter hereof and supersedes all negotiations, prior discussions and
prior agreements and understandings relating to such subject matter. No material
representation, warranty, covenant, agreement, promise, inducement or statement,
whether oral or written, has been made by Seller or Buyer and relied upon by the
other that is not set forth in this Agreement or in the instruments referred to
herein, and neither Seller nor Buyer shall be bound by or liable for any alleged
representation, warranty, covenant, agreement, promise, inducement or statement
not so set forth.
11.14 Severability. If any term or provision of this Agreement shall be
------------
determined to be illegal or unenforceable, all other terms and provisions of
this Agreement shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
11.15 Parties in Interest. This Agreement shall be binding upon, and shall
-------------------
inure to the benefit of, the parties hereto and their respective successors and
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any other person or entity any benefits, rights or remedies.
EXECUTED as of the date first above mentioned.
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SELLER:
CHOCTAW II OIL & GAS, LTD.
By: Choctaw Corporation,
its General Partner
By: /S/ W. RUSSELL BROWN, JR.
-------------------------
W. Russell Brown, Jr.,
President
BUYER:
NANCE PETROLEUM CORPORATION
By: /S/ RON SANTI
-------------
Name: Ronald B. Santi
Title: Vice President, Land
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